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Guatemala Close To Dollarization

April 30, 2001

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GUATEMALA CITY (AP) _ Banks are closing early to stockpile greenbacks. Ads champion the value of new dollarized bank accounts. And some stores have two sets of price tags ready to go.

Guatemala moves closer to becoming the fourth Latin American country to adopt the U.S. dollar as its official currency Tuesday, when a law allowing residents to demand their paychecks in greenbacks, open bank accounts in dollars and settle bills using any foreign currency takes effect.

The government says the plan will open the economy to the global market, and is quick to point out that the almighty dollar will not replace Guatemala’s quetzal. Under the new law, businesses aren’t required to accept dollars, but will be allowed to accept payment in any foreign currency if they want.

But many say this country is well on its way to switching to the greenback to jump-start a sluggish economy. The quetzal’s weakness against the dollar _ recently falling to eight-year lows _ has hurt the country’s purchasing power abroad.

The new plan is designed to attract international investment and help Guatemala steady inflation.

Supporters of the measure maintain that many Guatemalans already make mortgage and car payments in dollars.

``In effect, we are legalizing practices that have gone on for many years,″ said Lizardo Sosa, president of Guatemala’s National Bank.

Like most of its Central American neighbors, Guatemala’s economy has become increasingly dependent on dollars sent home by family members working in the United States.

The Bank of Guatemala reports that remittances pumped more than $560 billion into the local economy last year and generated nearly $200 billion in the first three months of this year.

``I don’t think we will see everyone doing their business with dollars or other foreign currency right away,″ said Anai Herrera, an economic analyst for the Independent Center of Social Studies and Research, a Guatemala City-based think tank. ``But the new law will remove restrictions on the large sector of the population that has dollars ready to go. No one can say where that will lead.″

After the new law is implemented, the market will continue to determine the exchange rate of the quetzal against the dollar, a tally that stood at 7.8 to the dollar on Monday. As in the past, Guatemalans will be able to change quetzales for dollars at banks.

To revive a stagnant economy, El Salvador began using the dollar alongside its colon in January. Facing chronic inflation, Ecuador scrapped its sucre and adopted the dollar in September after a six month transition period. Panama, meanwhile, has used the dollar as its currency for nearly a century.

Argentina has pegged its currency, the peso, to the dollar since 1991.

Since the end of a bloody, 36-year civil war in 1996, Guatemala’s economy has been on the decline. Labor Ministry figures released this week put unemployment as high as 10 percent and report that 65 percent of Guatemalans live below the poverty line.

``This does start a process that many believe will end with full dollarization,″ said Maria Castro, an economics expert who also works for the Guatemala City think tank. ``There is fear that the dollar will become the only thing out there.″

But even though a local newspaper featured an illustration of a dollar in the shape of a Pac Man gobbling up quetzales Monday, others here say they don’t expect a drastic change.

``We’ve not prepared anything yet,″ said Luis Arriola, the owner of a chain of five downtown grocery stores. ``We are waiting to see what the Guatemalan market does when filled with money that is not its own.″

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